Walmart’s recent announcement to acquire smart TV manufacturer Vizio for $2.3 billion has raised eyebrows and sparked curiosity about the motivations behind this move. While many may assume that Walmart is primarily interested in expanding its consumer electronics offerings, industry experts suggest that the real driving force behind the acquisition is advertising. In this article, we will delve into the four key factors that explain why Walmart is keen on acquiring Vizio.
Firstly, Walmart can capitalize on Vizio’s extensive reach. While Vizio is well-known for its TVs, the company has transformed itself into a software company in recent years. Its SmartCast operating system allows viewers to stream apps like Netflix and Hulu without the need for additional devices. This system also enables Vizio to sell ads, presenting a significant opportunity for Walmart. With 18 million active accounts using SmartCast, Walmart could not only control the pricing of Vizio TVs but also expand the reach of SmartCast by incorporating it into their own brand of TVs. This move could potentially put ads in front of millions more viewers, giving Walmart a competitive advantage over rivals like Amazon and Best Buy.
Secondly, the acquisition of Vizio would provide Walmart access to valuable customer data. Vizio’s TVs come equipped with automatic content recognition technology, which allows the company to understand viewers’ preferences. By combining this data with Walmart’s extensive knowledge of customer purchasing behavior, the two companies can create more personalized and effective advertisements. For example, if Vizio knows that a viewer frequently streams children’s shows, they can choose to display ads for snacks or diapers. This integration of data would enable Walmart to deliver more relevant ads and measure their impact on sales, which is considered the “holy grail” for brands.
The third factor driving Walmart’s interest in Vizio is the profitability of advertising compared to traditional retail operations. While running a store entails numerous costs, advertising is a highly profitable venture. Operating margins for advertising can exceed 65%, whereas Walmart’s operating margin was approximately 4% in the previous fiscal year. By venturing into advertising, Walmart aims to increase its profitability and catch up to its competitor, Amazon. Amazon’s advertising unit saw a 27% growth in sales, reaching nearly $15 billion in the last reported fiscal quarter. Walmart sees the potential for similar success by leveraging its extensive customer base and advertising opportunities across various platforms.
Lastly, Walmart’s advertising business has already been growing rapidly, and the acquisition of Vizio could further fuel this growth. The retailer has expanded its advertising opportunities in its stores, including third-party ads on self-checkout lane screens and demo stations where brands can showcase their products. Additionally, Walmart Connect, the company’s U.S. ad segment, experienced a 22% growth in the last quarter. With Vizio under its umbrella, Walmart gains access to TV spots on streaming services, which can be bundled with other types of ads. This diversification of advertising offerings positions Walmart as a formidable player in the advertising space.
In conclusion, Walmart’s interest in acquiring Vizio goes beyond expanding its consumer electronics portfolio. The main driving force behind the acquisition is advertising. Walmart aims to capitalize on Vizio’s reach, leverage customer data to deliver more personalized ads, tap into the profitability of advertising, and further grow its advertising business. With this strategic move, Walmart aims to solidify its position as a retail giant and compete with industry leaders like Amazon in the lucrative advertising industry.
